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Can you distinguish between bad stocks and bad companies

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Reference no: EM13940466

Horse and Buggy Inc. is in a declining industry. Sales, earnings, and dividends are all shrinking at a rate of 10% per year.

a.If r = 15% and DIV 1 = $3, what is the value of a share?

b.What price do you forecast for the stock next year?

c.What is the expected rate of return on the stock?

d.Can you distinguish between bad stocks and bad companies? Does the fact that the industry is declining mean that the stock is a bad buy?

Shrinking rate...........10.00%
Required rate of return....... 15.00%
Dividend in 1st year.........$3.00

Reference no: EM13940466

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